Agency Deals - how the industry has failed to grasp the digital opportunity

The media industry has been through a lot recently. Assailed by digital, hunted by procurement, squeezed by the recession, media agencies have had their fair share of these problems; but a new development in recent months spells the end for the model. And far from seizing on the opportunity digital presents to reinvent their business, the industry seems bent on applying a discredited system to the new world too.

To understand why, we need to turn the clock back.

When the great schism between media and creative agencies occurred twenty years ago, the key sales proposition of the newly created media agencies was value. They focused on screwing down rates, and delivering them with cheaper staff.

And on the client side, fuelled by media auditors, procurement were given renewed focus on this newly accountable sector.

The media guys were making big promises, and getting paid less for them. Somebody had to pay, and media owners stepped up to the plate. Agency deals were honed and sharpened, and the market shifted around to accommodate their power.

Broadly an agency deal works like this. An amount of money, or a level of share is granted to a media owner. In return, an amount of media value is granted. The agency then divides this up amongst its clients.

But that division isn’t even. And it isn’t everything.

Some clients get more than others. For every client who’s getting pricing below the average, there has to be another who’s overpaying (or two smaller ones). Even matching clients’ complementary requirements to balance the books isn’t enough, with a rumoured £300m overtraded last year in TV alone.

But the agency tries not to give it all away. If they don’t commit the whole dealbase, they can keep the difference – substantial sums that make up for the uneconomic fees their clients pay.

So why do clients wear this?

For some, being able to report a cheap fee to the board is enough; they’d prefer it if the agency was making money on the side. Others calculate that because they’ve made heavy demands in their appointment negotiation, they’re on the benefit side of the deal book, and therefore ahead on the game. Some are simply being mercilessly exploited.

So even though advertisers get media to fit the agency’s deal rather than their marketing objectives, enough will wear it to make it work, and this has enabled agencies over the years to respond to procurement pressure by steadily reducing their fees.

What’s changed?

Two things.

First, fees have hit a new low. One global media account is rumoured to have changed hands recently for 0.5%. Nobody on the board of that client is asking what they get for that amount, but the answer is simple. They get junior people. Simple media solutions, stacked high and looking cheap. Agencies’ hope that by defining the service tightly, they can make extra by charging for out of scope work. But inexperienced staff don’t know how to spot business development opportunities, and the out of scope rarely appears. And of course there’s the slush fund in the media dealbase to subsidize the fee.

And here’s the final nail in the coffin. Big advertisers have started to abandon the media pitch, instead auctioning the media to lowest bidder. In effect, these advertisers have twigged that the multi-round auction process will cause agencies to cannibalise the slush fund until there’s nothing left.

A few pioneers see digital as the way out of this mess. By focusing on value outputs rather than cost inputs, both advertisers and agencies benefit. But on both sides, many have simply imported the old model. 

Rock bottom fees. No out of scope work. No subsidisation from the deal base. Dumbed down staffing. What’s left for the media industry, and what’s left for GSK’s last-to-the-party media review?

The business of conversation on Twitter

‘Just setting up my twttr’, the first status update on Twitter was sent March 21st 2006 by co-founder Jack Dorsey; 130 years separated it from the first successful telephone call when Bell called “Mr. Watson, come here, I want to see you” and Watson heard each word distinctly, though history doesn’t note how irritated he probably felt.

At first glance, I’m struck by the banality of both the statements; hardly ‘one giant leap for a man’. But whilst Twitter is often criticised for the trivial nature of its content, people forget that the vast majority of phone calls are of the ‘get some milk on the way home’ variety; hardly changing the world.

So the microblogging site that gives you just 140 characters to share your deepest thoughts is four years old.  It’s been hacked by the Iranian Cyber Army, turned down both Google and Facebook as suitors and launched a thousand croissants.

It’s one of the most talked about brands on the internet; all this without turning a bean in profit.

We don’t care about that.  We hear lots about Ashton Kutcher and Stephen ‘I’m stuck in a lift’ Fry on Twitter, and those celebrity brands have certainly found value in connecting directly with their fanbase.  Astronauts tweet from space, babies from the womb.  But beyond those individuals, the question on marketers’ lips is, has business found a way of making money from Twitter?

Mostly, as with Facebook, business activity on Twitter is unfocused, lacks a clear reason for being there, and most importantly, a benefit for customers.  But there are a few exceptions, from big businesses to small, where enterprising people are connecting to consumers for their mutual gain.

Dell has booked $3m in revenue and gained substantially in awareness of its outlet store.  With over 80 Dell-branded Twitter accounts, the company uses the channel for customer service, distributing coupons and exclusive offers to customers regionally.

Best Buy adopted Twitter broadly across its organisation, launching its Twelpforce service with employees encouraged to answer technical queries from consumers in the channel.  They’re not paid to do this, but employees sign up via Best Buy’s own interface and follow a well-crafted set of social media guidelines created by the company.

Hundreds of customer queries are answered every day with typical issues being product recommendations and customer support; ‘If the blue light stays on, it's likely a camera software driver issue with light levels. #twelpforce’, ‘#twelpforce Is there a specific refrigerator you have in mind, most doors will come off’.
Jetblue in the US use it to ‘break down the artificial barriers between customers and the individuals who work at companies’, and report that when customers are better informed about delays and other problems, their treatment of front line staff improves.

KogiBBQ in Los Angeles, a mobile vendor of Korean/Mexican fusion food (you can’t make this stuff up) uses Twitter to let it 58,000 loyal fans know when and where its trucks will be.  So if you’re in the market for a stinky leprechaun burrito (there’s no explanation of the Irish content) you need to know the ‘Alibi room grill is fixed!! Come on back and grab some gruba!!’

What distinguishes these successful brands is their eagerness to connect with consumers.  The overwhelming majority of conversations are about them, rather than with them; and they flourish by being a part of the conversation rather than being a broadcaster.

It speaks volumes about their openness, and puts a human face on the corporation.

And mass marketers who dismiss the traffic volume as irrelevant are missing one important thing.  Both Bing and Google index Twitter; and the recency of the content drives it right up the results.  So when consumers search for your brand, you’d better hope the conversation’s good.

The death of serendipity?

A version of this was published in marketing magazine in Feb 2009; this piece looks at how the internet threatens to paint us into an intellectual corner.  Eli Pariser of MoveOn also speaks about this at TED in 2011 (no link published yet).

 

In a 1754 letter, the writer Horace Walpole coined the term ‘serendipity’ – a word he derived from an old Persian tale, ‘The Three Princes of Serendip’.  In the story, the protagonists always benefited from unplanned discoveries, and these seemingly random occurrences ultimately enabled them to fulfil their mission.

Early in the development of the web, the capacity of the internet to surprise and divert us was recognised with the phrase ‘web-surfing’ - following links through the internet that led to places the reader had never anticipated when starting their mouse-journey.

And although web-surfing rarely created the sort of benefits the three princes sought (wealth, kingdoms, marriage to beautiful princesses etc.), the web was seen as a force that opened up our horizons – exposed us to new thinking, concepts and ideologies.  But now, there’s an increasing concern that far from expanding our horizons, digital media in general are making our worlds smaller.

In the analogue age, the shortage of bandwidth meant few TV channels – so ideas competed for exposure, and we had little choice but to see them.  Now, we can watch the God Channel, the Wine Channel, the Gay Network on Sky, and never be exposed to atheists, real ale fans or Jeremy Clarkson.

On the internet, collaborative filtering means we passively influence others when we do things online.  We can shop at Amazon, and be shown other books purchased by people who bought the book we’re interested in, and listen to Last.FM where similar listening profiles will suggest tracks we might like.  In this way, our choice of music and books is swayed by people whose consumption patterns indicate they’re like us.

Social networking has added another dimension to this, enabling us to hang out with people who share our views, rather than merely people who share our geographic location.  Now, we can hang out with others who believe in reincarnation, UFOs, homeopathy or banking, and never trouble ourselves with views that run contrary to our own.

Increasingly it seems, digital media perform a reductive role in our lives – patting us on the back and telling us we’re right, and keeping anything unsettlingly different away from us.

Just as it’s said that the Queen believes the world smells of fresh paint and the national anthem’s playing everywhere, we’re constantly presented with a worldview that induces complacency. 

The world looks comfortable, unchallenging and familiar, and it appeals to what sociologists call homophily – the ‘birds of a feather’ tendency of people to cluster around things that are common to them.

Isn’t this good though?  Isn’t it great that if we like Aretha Franklin we could discover Etta James?

Undoubtedly.  But we’re never going to hear Bach’s double violin concerto, or the Dead Kennedys. 

Which makes a new development on LibraryThing.com interesting – this website for people to catalogue and share their libraries recently launched the ‘unsuggester’ – a tool they describe as ‘the worst recommendation tool ever’.  It uses statistical analysis of users’ libraries to determine the books least likely to exist in the same collection – type in Immanuel Kant’s ‘Critique of Pure Reason’, and it suggests ‘Confessions of a Shopaholic’; enter ‘Henry Kissenger’ and you get ‘Terry Pratchett’.

Unsuggester is fun, but it tries to address a serious issue.

When we launch new products, we challenge behaviour patterns.  When we try to attract new customers, we’re asking them to do something different.  If the effect of homophily is to fuel people’s insularity and build resistance against change, then in the future it will be harder to talk to people unbidden, more difficult to create new relationships.

As marketers, homophily can reinforce our brand relationships.  But it can also stand in the way of new ones, and addressing this might just benefit from some serendipity.

If we can believe the numbers, change is accelerating

This article was first published in Marketing magazine.

This is the one hundredth column I’ve written for Marketing. 100 is an important number in western culture – we follow the FTSE 100, the Billboard 100, we review after the first 100 days and we can never forget Haircut 100.

So this week I’m going to look at some of the numbers that tell us a little about how digital has taken our world by storm. The Web is 6555 days old today, counting from when Tim Berners-Lee and Robert Cailliau submitted their WorldWideWeb: Proposal for a Hypertext Project – the first use of the WWW term, and even for someone like me who lives and breathes this stuff, some of the figures are staggering.

Then, the internet was a purely text-based environment. But Berners-Lee and Cailliau’s idea of marrying it with hypertext caused a revolution. And despite British Telecom’s failed attempt to enforce a patent in 2002 on hyperlinks, the web has become perhaps the single biggest force for change since the invention of walking.

Every possible permutation of 3 character .com domains has been registered. The BBC has 43 different translations of its website, Facebook has 63.

Worldwide, 74 billion searches are made each month, and the size of the index held by search engines continues to grow apace. In 2001, searching for "search engine optimisation” threw up 12,300 results in Google. That number today is 77.8 million – an increase of 632,420%.

The average monthly number of searches per searcher in the UK is 124 - the same as the average number of cups of tea per Briton per month. And although those results are delivered in the blink of an eye, so far this year according to worldometers.com, users have spent 24 trillion hours waiting for web pages to download.

Perhaps it was worth the wait. In the US, 1 of every 8 couples getting married last year met over the internet.

Proof though that the internet is not immune from external fiscal factors came with the creation of President Bush’s economic stimulus plan, which involved sending cheques of up to $1200 to taxpayers. It was widely reported as having created a 30% boost in internet pornography revenues, which currently run at $3075 per second (or 0.18% of global GDP).

30% of internet users have made a purchase (and possibly had their identity stolen) from spam emails. A recent study also showed that less than one in one million spam emails actually lead to sale – which explains why there are so many of them.

After years stuck in your computer, mobile is becoming a serious force in digital. The number of text messages sent and received every day exceeds the world’s population, and A SIM-free mobile phone sells on eBay every 17 seconds – part of the 1.3 billion handsets that are expected to be sold this year.

Ray Kurzweil’s Law of Accelerating Returns describes the exponential growth of change in technological progress. He believes Moore’s Law (the processing power available for a dollar doubles every two years) can be applied to our broader experience of technology. Let’s consider; agriculture appeared 12,000 years ago. The first cities appeared 6,000 years ago, printing 532 years ago, TV 80 years ago, the internet 18 years ago.

If he’s right, half the change we’ve experienced since the internet started occurred in the last two years, and the next 18 years will see 362 years’ worth of change.

So our power to predict the future, to plan our businesses and understand our consumers, is increasingly threatened by this acceleration. And the voices that say they now understand digital are the most dangerous of all, because if they understood it yesterday, things are different today.

The Queen takes Buckingham Palace online

This article was first published in marketing magazine.

The good folk of Google UK are steam cleaning the red carpet and practising their curtseys ahead of a visit by royal neighbours, the Queen and the Duke of Edinburgh, this week.

According to Buckingham Palace “the Queen has always kept up to date with the latest technology” although when conferring an honorary knighthood on Bill Gates two years ago, Her Royal Highness let on that she hadn’t yet used a computer.

This hasn’t stopped the house of Windsor’s technological advances though. Last year she became Google’s first royal client, launching her YouTube channel, whose production team she will be meeting when she visits.

Viewers can see videos of this year’s blackcurrant harvest at Sandringham, and catch up on Swan Upping news (fascinating interview with the Queen’s Swan Marker), whilst revisiting old favorites like the 1957 Christmas Broadcast (a million views so far).

Remarkably – if you’re a bit bah-humbug about this sort of thing – it’s pretty popular stuff. The channel exceeded the US President’s White House channel’s daily viewing figures, with nearly 400,000 people visiting it in its first two days, and it continues to trounce Queen Rania of Jordan’s channel with more than twice as many subscribers.

To date the Royal Channel has notched up over 22,000 subscribers, making it the 18th most popular on YouTube, and joining an array of other new media ventures from what HRH calls ‘the firm’, including a podcast of the Christmas Broadcast, a website and an ecommerce venture selling tickets online for visits to royal residences and galleries.

Odd though it might seem for an operation that surrounds itself with people who dress in 19th century outfits, the Royal Family are no strangers to technology. Back in 1980, Prince Philip was at the centre of one of the earliest hacking controversies, when his email account was accessed by two journalists.

So how much of her time does the Queen really spend online? What would a peek at her digital media diary look like?

It is reported that the Queen mastered emailing in the last couple of years and now has a Blackberry so that she can keep in contact with the family while on the move. The Duke of York, the most tech savvy of her heirs, also suggested that her senior aides be equipped with Blackberrys too. And William bought her an iPod two years ago, on which she reportedly stores the Last Night of the Proms.

Last year’s Christmas message was uploaded onto You Tube almost 50 years to the day that her message was broadcast for the first time on TV. Perhaps presciently, the theme of the 1957 speech was technology: “I very much hope that this new medium will make my Christmas message more personal and direct”.

So whilst many would have thought the Queen more silver salver than silver surfer, there’s no doubting The Firm’s determination to reach out using whatever tools come to hand.

The death of deference, particularly in the mainstream media, means the royals share a common objective with politicians, companies and celebrities, to get a message across to the public without editorial interference.

It’s hardly the stream of consciousness ramblings that we’re used to from the blogosphere, but professionally-produced content albeit with a slightly homemade feel. Video captions look like they were produced at home, but there’s a clear strategy here. Show the royals in action – visiting troops, supporting community development, helping charities.

No video footage of junior ranks falling out of Mahiki here – it’s all hard-working nobles, designed to build confidence in the monarchy as a solid, practical and valuable part of UK plc.

Google are used to visits from CEOs who don’t get digital but are keen for the association. But as Googlers stand by their beanbags to show the Queen around, they’ll be welcoming a business that’s seized the web with both hands.

Affiliates at Christmas

This article was first published in marketing magazine.

Last week, I wrote about how marketers can prepare their search activity for Christmas. Whilst search campaigns for the holiday season have been in planning for some time now, there’s still a lot that can be achieved in the short time that’s left before the slimming season takes over.

So assuming that search is all sorted now, this week we’re going to look at affiliate marketing. Unlike search, there aren’t many different strategies needed at Christmas – rather it’s the intensity of competition that demands merchants up their game.

Weakness on the high street is leading more retailers to focus effort and investment on their internet plays, and this fourth quarter is likely to see some of the most intense rivalry yet, as merchants compete for customers’ hard-earned cash.

I’m going to look at three actions that are specific to the season, and at elements of good practice that simply become more important as competition peaks.

First, content affiliates – who run websites with content designed to draw in traffic mostly sourced from natural search. Most will be optimising their sites for Christmas right now so those merchants that can provide them with copy, product ideas and creative in good time will stand more chance of being featured prominently.

Secondly, some affiliates specialise in Christmas – creating sites and search campaigns aimed directly at consumers looking for seasonal goods. Your existing year-round affiliate relationships may not include these outlets, and it’s useful to review coverage at this time of year to ensure you’re represented here.

These specialists look to get their sites up and running three months in advance of the season’s peak in order to maximise coverage within the search engines’ natural listings. But many will still be finalising sites over the next couple of weeks – so there’s still time to get materials out to them.

As ever with affiliate marketing this is about effective communication. The offer to affiliates itself is one thing, but building a direct relationship with affiliate partners stimulates lower churn and better prominence, as well as useful intelligence about what affiliates are looking for to drive their businesses.

You wouldn’t manage a sales force through email alone, and affiliates are no different. They have their own goals, marketplace dynamics and challenges to their businesses – a dialogue with them not only enables them to work more effectively on your behalf, it enables you to shape your offer around what they need – keeping you ahead of the competition.

Third, as with search, if you can capture data and good practice around seasonal activity, this becomes a vital resource for future campaigns. Key actions can be recorded and used to build a process which can be applied repeatedly, benefiting from the ongoing accumulation of experience.

And you won’t have to wait until Christmas to apply it. Half term, Valentine’s Day, financial year end, Easter – all present seasonal opportunities which affiliates cluster around, and all therefore present an opportunity to dust off your model on a regular basis.

Affiliate marketing is a burgeoning sector which is becoming increasingly complex as it grows in value as a route to market. The competitive peak around Christmas will test merchants’ capabilities in managing this channel, and a good performance here will provide solid experience for the year.

Affiliate marketing was a £3 billion market in 2007, and it’s still growing fast as consumers increasingly turn to the web for purchases in the tightening economy. Christmas 2008 will be the biggest yet – and there’s little time left to grab a piece of the action.

Planning search for Christmas

This article was first published in marketing magazine

If you’ve got children, you’ll know the degree of forward planning that goes into Christmas. Mine started early lobbying (landscape analysis, benchmarking) in August, and by mid-September, their campaign had moved into a fully active phase.

Goals had been established, and broad strategies to achieve them put in place. Without being consciously aware of it, I’ve already got high spontaneous recall scores for ‘Lego Secret Agent Truck’, and ‘ponies’ (my daughter has audacious goals, and I’m not sure it’d go in the garage).

On the other side of the fence, retailers have been working away for months preparing their offerings. Christmas store designs were signed off months ago, and bets made about winning lines for the season.

But online, (with some notable exceptions) few retailers pay as much attention to Christmas planning as they do offline. This is particularly true in search – a key channel as the shopping season swings into action. So this week I’m going to look at three of the most important things you can do to get set for Q4 – there are plenty more, but space as ever is at a premium.

First, what happened last time? Smart search advertisers create separate campaigns for Christmas. This allows full control over seasonal inventory, facilitates independent measurement and creates a module that can easily be amended and re-used each year.

If your search team did this last year, you’ve got segregated performance data to go back to and see what worked and what didn’t, and this is the starting point for planning 2008. If they didn’t (and you still plan to be around next year), now’s the time to get this set up – you’ll thank yourself in 2009.

Analysis of historic data will help forecasting and ensure that the seasonal opportunity is maximised. Additional seasonal traffic, plus increased competition can push up CPC levels, so don’t miss out on sales by running out of budget.

This is easier said than done – after all competitor activity can drive up your volumes too, and to avoid being caught out you need to keep an ear to the ground.

So making sufficient funds available is vital to avoid disappearing from the search results just when there’s a spike in interest in your product or sector. But as ever, just being there isn’t enough.

Copy is always hugely influential on effectiveness, and at Christmas your advertising and product offering may be quite different to the rest of the year. This needs to be reflected in the integration of seasonal offers into ad creative messaging and the testing of different offers to maximise clickthrough and conversion. So test special offers, price reductions, free delivery and gift wrapping – but make sure your landing pages reiterate the offer.

This is one of the commonest mistakes. When you put a sign in the shop window saying ‘free giftwrap’, think how many consumers nevertheless ask whether you do free giftwrap before making a purchase. They don’t wait until after they’ve bought, instead they seek reassurance before they buy.

So by using the homepage to repeat the offer that’s brought them in, you’re offering the reassurance that the assistant gives in-store.

Finally, technology. Using an XML product feed as part of a search marketing platform allows stock availability to be used as a dynamic control in your search campaign. So when an item goes out of stock, keywords can be paused - minimising wasted clicks and ensuring budget is diverted to best sellers or available products.

Christmas is a time when spikes in demand can play havoc with inventory control, and the application of technologies like this can improve customers’ experience of a retailer, whilst also enhancing the effectiveness of its advertising budget.

I hope my kids get what they want this Christmas, and if they do, it’ll be in no small part down to their clear objectives, consistent strategy, and the groundwork they put in early on. They’re already halfway through their campaign - what chance do I stand?